HUD Secretary Mel Martinez wants to save homebuyers and refinance consumers money in transactions that are also much more transparent and with guaranteed closing costs. He has proposed a new rule to congressional committees that promises the most sweeping reform of RESPA since 1974. The Single Package approach would lump all settlement services including lending, title, and closing into one guaranteed amount, which on the surface would sound good to paperwork and junk fee-weary consumers.

But some Realtors, homebuilders, title companies and closing companies are afraid that the Single Package approach, to be managed by lenders, will benefit lenders more than consumers. They propose instead a "Two Package" approach in which lenders' fees are put in one package, while title and closing fees are put in another. That way, consumers can shop for the best prices and terms for both.

But the "Two Package" approach also has another benefit -- protecting the one-stop-shopping business model that many real estate brokers and homebuilders are trying to employ to stave off unprofitability. By offering real estate services, lending, and closing services, these brokers and builders claim they can offer consumers better service at fair rates in a one-stop-shopping environment.

If lenders are in control of a one-package closing, they allege, lenders could force volume price concessions from closers without passing along the true rates and savings to consumers.

Sue Johnson, spokesperson for the Real Estate Services Providers Council, Inc., explains, "We began debating this among our board of directors in 1996. Our large lender members laid it on our table. HUD's proposed rule was the lenders' original packaging proposal. The problem is that it allowed only mortgage lenders to offer these guaranteed packages."

That's why the National Association of Realtors (NAR), Realty Alliance, and other real estate-related organizations have been upset by the proposed lender-controlled "One Package" solution.

Ancillary services are critical to the real estate industry's bottom line.

Says GMAC Home Services' Executive Vice President of Marketing Lane Barnett, "There's been a confluence of events that make one-stop shopping a very timely issue. First, is the decline in per-transaction profitability that most brokers have experienced. Secondly, customers are looking for better service and are telling the industry so. Recent studies by NAR indicate that 42 percent of home buyers would select an agent or company because they can supply other services such as mortgages," Barnett said.

"At the end of the day, one stop shopping makes sense because it give consumers what they want and helps brokers achieve additional revenues," Barnett added.

Does the "One Package" approach show favoritism to the lending lobby?

Not intentionally, says HUD, and it is considering all points of view.

Brian Sullivan, spokesperson for the HUD, says, "We have to take a step back, we don't know the direction the department will take, so for those that suggest that Secretary Martinez is pursuing any course is uninformed. We are in the process of refining the proposed rule, and exploring all the options. We aren't in a position to discuss any particulars. There are rumors going on, but I don't know what is being discussed right now."

The steps in the rule-change process are these: propose the rule, solicit public comment, digest the comment, and refine the rule according to unintended consequences which includes the feelings of all constituencies, says Sullivan.

"It has taken a 'lot of time' to go through the public comment period," he says, "as to what form it will take, I can't say."

Explains Sullivan, "When we know the final rule, the next step in the rule-making process is we will transmit our revised rule to the Office of Management and Budget for review. And they can make changes, or bless it as is, or make moderate alterations, at which time we can go full steam ahead, and repurpose certain elements seeking additional comment, but it is all dependent on what OMB says with regard to the proposal.

"Our economic analysis of the proposed rule is that in a typical year, Americans spend $50 billion dollars on settlement costs and our proposal would save them up to $10 billion a year. We are not setting price, but market influence has been lacking. The regulations are woefully out of date and the marketplace will bring pressure and that is a challenge to some people who want to protect their own compensation, but not to the exclusion of homeowners who buy and sell homes. Secretary Martinez wants to strike a balance between protecting the interests of millions of consumers and maintaining the competitive environment in the mortgage industry. He wants to get this right. The housing sector is too important to do anything less."

Sullivan bristles at real estate industry frustrations that the HUD is determined to favor the lending lobby.

"We have had countless meetings with anyone who wants to meet," says Sullivan. "We are trying to be considerate in this process in listening to everybody, and we are refining the rule to strike that balance and keep an open mind. To benefit large lenders simply is not our interest or to benefit some VS others. If you look at how things have gone, we have tried to get consumer groups and industry groups without HUD being involved to hammer it out and they can't, so past efforts have failed."

RESPA reform is a "third-rail" issue, but Secretary Martinez, when he took office, decided to get his hands around it, says Sullivan.

"The rules of RESPA were enacted in 1974, and the mortgage settlement process is different now. Brokers originate 65 percent of mortgage loans, and in 1975 you couldn't find a mortgage broker. Now the settlement process is too complicated, unclear and expensive. When you buy a home, you shouldn't have to feel like you need to go home and take a shower."

NAR is on record with its concerns over the HUD proposal. "We encouraged HUD," says David Lereah, senior vice president of the NAR, "if it is committed to a guaranteed mortgage package model -- to pursue a two-package option.  If HUD's intent is to promote competition among packagers, the guaranteed proposal must be designed to allow anyone to package settlement services independent of the loan.  If designed correctly, opportunities may be available for non-lender packagers, such as real estate brokers, title companies and others to provide additional choices for the consumer, which do not exist under the current proposal.  Two packages are better than one and we believe would encourage greater market competition and reduce costs to consumers."

Reiterates Sullivan, "We aren't going after anyone. We wouldn't be having this conversation, but this is Secretary Martinez' initiative. If we are going to save consumers $700 per loan transaction, it will come out of somebody's pocket."

Published: September 15, 2003

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.